BSA/AML Examination Manual - ffiec

Parallel Banking — Overview
Parallel Banking — Overview
Objective. Assess the adequacy of the bank’s systems to manage the risks associated
with parallel banking relationships, and management’s ability to implement effective due
diligence, monitoring, and reporting systems.
A parallel banking organization exists when at least one U.S. bank and one foreign
financial institution are controlled either directly or indirectly by the same person or
group of persons who are closely associated in their business dealings or otherwise acting
together, but are not subject to consolidated supervision by a single home country
supervisor. The foreign financial institution will be subject to different money laundering
rules and regulations and a different supervisory oversight structure, both of which may
be less stringent than in the United States. The regulatory and supervisory differences
heighten the BSA/AML risk associated with parallel banking organizations.
Risk Factors
Parallel banking organizations may have common management, share policies and
procedures, cross-sell products, or generally be linked to a foreign parallel financial
institution in a number of ways. The key money laundering concern regarding parallel
banking organizations is that the U.S. bank may be exposed to greater risk through
transactions with the foreign parallel financial institution. Transactions may be facilitated
and risks heightened because of the lack of arm’s-length dealing or reduced controls on
transactions between banks that are linked or closely associated. For example, officers or
directors may be common to both entities or may be different but nonetheless work
together. 150
Risk Mitigation
The U.S. bank’s policies, procedures, and processes for parallel banking relationships
should be consistent with those for other foreign correspondent bank relationships. In
addition, parallel banks should:
• Provide for independent lines of decision-making authority.
• Guard against conflicts of interest.
• Ensure independent and arm’s-length dealings between the related entities.
150 For additional risks associated with parallel banking refer to the Joint Agency Statement on Parallel-
Owned Banking Organizations issued by the Board of Governors of the Federal Reserve System, Federal
Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift
Supervision, April 23, 2002.
FFIEC BSA/AML Examination Manual 162 8/24/2007